Unless you are Hellen Keller (blind, deaf, and dumb); a recluse alienated by modern society; or perhaps Amish (and even then maybe not), you are probably aware of our nation’s enormous pile of debt. At last count, the figure stands at $13.7 trillion, and that monetary trench only promises to get deeper and deeper as the years pass: a projected $418 billion deficit in 2015 will balloon into a $1.3 trillion yearly shortfall by 2030. Right now, we borrow some 40 cents of every dollar we spend as a nation. As a child, I was always taught to spend within my means, and never to buy what I could not afford, lest I find myself in an endless spiral of interest payments and debt. Our country clearly never had a fiscally responsible mother to guide its financial practices as I did. The risks of excessive national debt, however, are a bit different at the national level – investors losing confidence in the stability of U.S. investments leading to higher interest rates, thereby causing a general economic contraction as credit becomes harder to attain, and the addition of a new dimension of frailty to an already fragile economy.
Ever since the Clinton-era budget surplus became a deficit under the Bush administration, legislators from both parties have been calling for a reduction in the deficit, largely through cuts in inefficiencies and a reduction in the size of government (especially on the right). The results thus far are less than encouraging. Actually, they are outright disheartening. Nevertheless, the game of fixing the budget is by no means an easy one.
Thanks to the New York Times, however, now you too can try your hand at fixing the budget, with their handy new puzzle, “You Fix the Budget”. It presents, quite elegantly, the difficulties associated with creating a balanced (or at least sustainable) budget. A solution requires finding the right balance between cutting costly ventures and preserving helpful and essential services for the American public. Everything is a tradeoff: certainly we can reduce the size of our nuclear arsenal or end farm subsidies, but doing so would likely leave our nation vulnerable and risk jeopardizing our international dominance, or leave American farmers in a precarious economic position. And cutting services in which certain groups have vested interests risks alienating large swathes of the voting populace. Budget cuts, indeed, are politically precarious ground to tread upon – it is hard to explain to someone that what is good for the economy in the long term will still require a lot of sacrifice and hardship in the short, or even medium, term.
Need some guidance? Luckily, the National Commission on Fiscal Responsibility, President Obama’s bipartisan deficit reduction commission, recently released a helpful list of suggestions that would, in theory, reduce the deficit by $3.8 trillion over the next decade, reducing the deficit to 2.2% of GDP by 2015 from a current 9%. Their self-described “shock therapy”, as labeled by commission member Senator Kent Conrad, includes Social Security and Medicare cuts, shutting one-third of all overseas military bases, and implementing tax increases while reducing the corporate tax rate form 35% to 26%. The alternative minimum tax (AMT) would be eliminated, and the federal gas tax increased by 15 cents. A few more highlights of their recommendations:
- Enact tough discretionary spending caps and provide $200 billion in illustrative domestic and defense savings in 2015.
- Pass tax reform that dramatically reduces rates, simplifies the code, broadens the base, and reduces the deficit.
- Address the “Doc Fix” not through deficit spending but through savings from payment reforms, cost-sharing, and malpractice reform, and long-term measures to control health care cost growth. (Medicare payment reductions.)
- Achieve mandatory savings from farm subsidies, military and civil service retirement.
- Ensure Social Security solvency for the next 75 years while reducing poverty among seniors. (By raising the retirement age to 69 by 2075)
Admittedly, now is not the best time to be enacting comprehensive spending cuts – cutting off government services and reducing deficit spending and Keynesian stimulus as our nation is just beginning to emerge from a crippling recession could ultimately lead to a severe double-dip downturn. Still, if we do not begin talking seriously about implementing debt and deficit reduction now, then when will we? Something must be done to address the long-term fiscal solvency of our government. It may be that the deficit commission’s solution is the ultimate solution, or maybe some wily New York Times reader will find a solution in the Fix the Budget puzzle. Only one thing is certain: reducing the size of government and enacting sweeping budget reform will be a prime issue for the upcoming 112th Congress, as they attempt to deal with the consequences of ten years of fiscal insanity.
The full deficit commission proposal can be found here.
Photo source: justindupre.com